Catastrophe drawdown option a safety net

(FP)

On April 10, the World Bank Group’s board of executive directors approved new financing for Barbados that “will help the country quickly access financial resources in case of an emergency, so it can respond faster and support its people”.

The international financial institution said that the US$30 million Disaster Risk Management Development Policy Loan will help Barbados build stronger systems to manage natural disasters and health emergencies. It includes a Catastrophe Deferred Drawdown Option (Cat DDO).

The World Bank said the Cat DDO is an innovative financing instrument “that will provide a fast-access line of credit to support a timely and effective response once an emergency is declared”.

Lilia Burunciuc, World Bank division director for the Caribbean, explained in an interview how Barbados would benefit from the. Cat DDO and other assistance, including in the context of the 2025 Atlantic Hurricane Season, which started on June 1.

hat is the Catastrophe Deferred Drawdown Option (Cat DDO)?

WThe Catastrophe Deferred Drawdown Option (Cat DDO) is a contingent line of credit that provides countries with immediate liquidity in the aftermath of a natural disaster or a public health emergency. Once a state of disaster is declared, a country that has a Cat DDO in place can rapidly access funds to support its emergency response and recovery efforts.

To qualify, a country commits to a disaster risk management programme that strengthens its resilience, and it must have a satisfactory macroeconomic policy framework, which the World Bank monitors periodically. Disaster management programmes include strengthened disaster risk management legislation, disaster risk financing strategies or sector resilience, such as building regulations, building codes, safe schools, and climate resilience.

On April 10, the World Bank Group’s board of executive directors approved a Cat DDO for Barbados. How will the island benefit from this?

Indeed, the World Bank approved a US$30 million Disaster Risk Management Cat DDO in April of this year. The Cat DDO serves as a financial safety net, enabling a timely and effective response to emergencies. It acts as an additional layer of financial protection – supplementing the country’s Resilience and Regeneration Fund and the insurance Barbados purchases from CCRIF (Caribbean Catastrophe Risk Insurance Facility). At the same time, the disaster risk programme supported by the Cat DDO helps the country to reduce risk and build resilience. So, a Cat DDO is not only an emergency financing tool but is a fundamental part of the country’s resilience strategy.

In what ways have other Caribbean nations benefitted from this kind of support?

Currently, four countries in the Eastern Caribbean, Jamaica, and the Dominican Republic have Cat DDOs in place, and soon Belize and Guyana will also have access to a Cat DDO. Two countries, St Vincent and the Grenadines and Grenada recently used their respective Cat DDOs of US$20 million to respond promptly to the eruption of the La Soufrière volcano in 2021 and Hurricane Beryl in 2024 respectively.

Both countries expressed their pleasure with the swift disbursement of funds. This helped them to minimise economic disruptions and support their recovery efforts.

How else is the World Bank helping Barbados become more resilient, especially following events like Hurricane Beryl?

Following the devastation caused by Hurricane Beryl in 2024, the World Bank approved the US$54 million Beryl Emergency Response and Recovery Project for Barbados. This project focuses on: (i) rebuilding critical infrastructure (ii) protecting vulnerable communities (iii) ensuring the sustainable recovery of the fishing industry, and (iv) enhancing the country’s disaster preparedness capacity. This project also aims to pave the way for a more resilient Barbados in the face of future climate risks and addresses the resilient recovery of the fisheries sector, the Bridgetown Port, the Fisheries Marina and affected coastal areas.

In addition, the World Bank and the Inter-American Development Bank are collaborating on strengthening Barbados’ disaster risk financing by conducting a joint disaster risk financing assessment. This work is still in progress. Once completed, the two institutions will provide specific support to implement recommendations emanating from the assessment.

Further, in 2024, the World Bank launched a Crisis Preparedness and Response Toolkit which included access to Climate Resilient Debt Clauses (CRDCs), allowing small, vulnerable states to postpone loan and interest repayments after a catastrophic event – so governments can focus on recovery rather than paying off debt. Barbados was the first country to sign a CRDC agreement with the World Bank last year.

The 2025 Atlantic Hurricane Season officially starts on June 1. What are the key lessons from the 2024 season?

Extensive damage from storms like Hurricane Beryl highlighted the necessity for robust disaster preparedness, resilience and financing instruments like the Cat DDO and other risk finance solutions. Investments in infrastructure, early warning systems, and community education are also crucial to mitigate future impacts.